Money Management

Paying off your mortgage is a major accomplishment and a big win for your personal finances. Here’s what to expect after paying off your home loan. 

Becoming a homeowner is a major accomplishment. Since a home purchase can be costly, many people finance their purchase with a mortgage. You may wonder what happens once you pay off your mortgage in full and what you should do after your home loan is paid off. Keep reading to discover what to expect and what steps to take after paying off your mortgage debt.

You’ll no longer owe money to your lender

After making your final mortgage payment, you’ll no longer owe money to your lender. Knowing you’ve fulfilled your loan obligation will feel amazing. But you want to make sure you take the proper steps after so you don’t continue making payments on the loan. You’ll want to collect the necessary paperwork from your home loan lender.

Here are some documents to look for in the mail after paying off your mortgage:

Loan payoff letterCanceled promissory note (states you met the financial obligations of your loan)A deed of reconveyance (which indicates the property’s title has been transferred from the lender to the borrower)A deed (shows that you’re the sole owner of the property)A certification of mortgage satisfaction (this is issued by a local recorder or county clerk, showing that the property has been paid off)Remaining escrow funds (if there is money remaining in your escrow account after paying off your loan, your mortgage lender will mail you a check)

It may take time to receive all these essential documents, but it’s important to ensure you collect them and keep them safe for record keeping. You should also review any automatic payments you have set up to ensure they’re no longer enabled for your mortgage payment. Otherwise, money could still come out of your checking account.

Don’t forget about other homeownership costs

While you’ll no longer owe money toward the loan’s principal or be responsible for interest, you’ll need to keep paying your property taxes. You’ll likely begin to receive property tax bills directly from state, country, and local governments. But it’s not a bad idea to check in with each taxing agency to ensure they know to send the bills to you, instead of your lender.

You’ll also be responsible to keep paying your homeowners insurance premiums. Even if you’re not legally required to carry insurance coverage on your home once it’s paid off, it’s a worthwhile expense to continue paying. You want to protect your investment. You’ll want to coordinate with your home insurance company to arrange billing details.

Once your home loan is paid off, calculating your annual property tax and home insurance costs is recommended to determine a monthly amount to set aside in your high-yield savings account. Saving throughout the year can ensure you can afford the bills when they arrive.

Here’s an example: If your yearly property taxes are $6,500 and your annual home insurance premium is $1,000, you’d want to set aside $625 monthly to save for these yearly costs.

How to put your extra money to good use

Paying off your mortgage can free up more income for other expenses. What should you do with the extra money you have? If you have any high-interest debt, like credit card debt, prioritize paying it off. You can save money on interest fees by paying off these debts quickly.

If you don’t have an emergency fund, you might also put some extra money aside each month. You never know when an emergency expense may come your way, and it’ll feel good to know that you’re financially prepared. Home repairs and maintenance issues can occur anytime, so don’t neglect to save before you find yourself dealing with an expensive fix.

Finally, you might consider boosting your retirement contributions, especially if you’re not maxing out your retirement accounts. Having plenty of money for your retirement years can ease your financial worries. If you have yet to prioritize investing for retirement, check out our list of the best IRA accounts to learn more.

Owning a home outright is a major milestone

Hooray! Congratulations on paying off your home loan! Make sure you pat yourself on the back for all your hard work that led to this massive accomplishment. Check out our free personal finance resources if you’re looking for additional money management tips.

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Understanding your payout options is an important step in protecting your income — and your family’s — for years to come. Here’s why. 

For many Americans, retirement is a team sport between spouses. Managing expenses, collecting benefits, and optimizing retirement savings, such as in an IRA, are all pieces of the post-retirement puzzle. And when a cornerstone of your retirement plan is your spouse’s monthly pension payment, it can be vital to protect that income. Here’s what you need to know about the joint and survivor annuity option, and how it can be an important part of your post-retirement income plan.

What is a joint and survivor benefit?

Typically, when we think about pensions, we think about a recipient getting payments each month until they die. But if a loved one also relies on that income, the stopping of pension payments due to the premature death of a spouse could be devastating. Fortunately, pensions often offer alternative ways to collect benefits.

Many pensions offer another payment option, known as the joint and survivor annuity. Instead of paying benefits to only one person, the pension will pay out a monthly benefit to the annuitant (the person receiving the annuity), plus a benefit to a survivor once the annuitant dies. Typically, the survivor must be the spouse of the annuitant to qualify.

When selecting a pension benefit option, retirees should take stock of the other retirement benefits available to their spouses. If your spouse is counting on part of your pension to fund their basic expenses, it may be a good idea to consider a joint and survivor annuity.

Why is this option important?

The joint and survivor annuity option on a pension can be a vital part of protecting a surviving spouse’s standard of living. As such, qualified pension plans are required to have the payment option, and many insurance companies offer private annuities with survivorship benefits.

Historically, heterosexual single-income families relied on a male breadwinner, who may have had a pension in his name. Because men generally have shorter life expectancies than women, a wife who relied on her husband’s pension payments may have had to make do without that monthly income for years following his death. A joint and survivor annuity could prevent such a situation from happening.

Today, the joint and survivor annuity payment option is just as important. While the gap in life expectancy by gender is narrowing, it is still very common for one spouse to live longer than the other. And even if a pension is not the sole retirement asset of a married couple, losing an income source in retirement can greatly reduce the financial security of a surviving spouse.

What are the drawbacks?

It should be made clear that a joint and survivor annuity will typically pay less each month than a single-life payout. Additionally, a survivor will not necessarily receive the same benefit amount as the original annuitant.

A joint and survivor annuity guarantees monthly payments over the span of two lives instead of just one. Generally, this will increase the number of monthly payments over the lives of the annuitant and their spouse, which reduces the monthly benefit amount. Additionally, many pensions only offer a percentage of that reduced amount to a surviving spouse after the death of the annuitant.

The joint and survivor annuity option can help preserve the income of a surviving spouse, especially in a single-income household. And while you may see a lower monthly benefit, in many cases protecting post-retirement income can be a higher priority than taking a chance on longevity.

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A new loan could impact your credit score, but the way you repay it will have more of an effect than your application itself. Read on to learn more. 

There may come a point when you need to sign a new loan. Maybe you’re tapping your home equity to renovate your kitchen. Or maybe you need to borrow money to fix your car.

When you apply for a loan, lenders will generally need to do a hard inquiry on your credit report so they can see what your borrowing history looks like. That will help them determine whether you’re a strong loan candidate or not.

In many cases, taking out a new loan will only result in a hit to your credit score of under 10 points. But in some cases, your score might drop a bit more. However, how you repay your loan will ultimately have the greatest impact on your credit score.

The initial hit to your credit score might be modest

One reason it’s so hard to maintain a perfect credit score is that any time you apply for a new loan or credit card, a hard inquiry is done that could drag your score down by a few points. In some cases, though, signing a new loan could have more of an impact on your credit score because it changes the length of your credit history.

Having long-standing loans and accounts on your credit report sends a positive message to lenders, whereas newer loans can sometimes work against you temporarily. That might seem like an annoying thing, but unfortunately, it’s one of the complexities of credit scoring. But even then, the hit may not be too substantial.

FICO reports that a borrower with a starting credit score of 793 might see their score drop to anywhere from 790 down to 770 after signing a $5,000 loan. Clearly, going from a 793 to a 790 is no big deal. But going from a 793 to a 770 is more upsetting because that’s a more substantial drop. That said, even a 23-point drop isn’t such a huge deal, especially when your credit score is in good shape to begin with.

The way you repay your loan will have a greater impact

While taking out a new loan might change your credit score to a smaller degree, your payment history carries more weight than any other factor when calculating your credit score. And so if you make all of your loan payments on time, that could help your score improve following the hit it takes in the course of your loan application.

But if you fall behind on your loan payments, you could cause a lot more damage to your credit score than what you caused by signing that loan in the first place. Once you’re 30 days late paying a debt, the damage can be extreme.

A 30-day late payment could drag a credit score of 793 down to a 710, says FICO. That’s an 83-point drop. And a 90-day late payment could send a score of 793 down to 660 — in other words, a 133-point drop. Yikes. So do try your best to keep up with your loan payments. And if you accidentally miss one, aim to make that payment as soon as you can.

But try not to focus too much on that initial hit to your credit score. Chances are, it’ll be modest and something you can recover from somewhat easily.

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You need money for unplanned expenses and to get through a period of unemployment. Read on so you don’t undercalculate your emergency fund. 

A recent SecureSave survey found that 67% of Americans don’t have enough emergency savings to cover an unplanned $400 expense. But even if you have a lot more money than that in your emergency fund, you may not have enough.

Don’t just land on a random number

Some people will save a fair amount of money for emergencies, like $5,000, and assume they’re all set. A $5,000 savings account balance is certainly respectable. And you should feel proud if you’ve saved that much. But that doesn’t necessarily mean your emergency fund is complete.

Your emergency fund should be a function of your specific expenses. And the general convention is to save enough to cover at least three full months of essential bills.

So if you only spend $1,500 a month on essential expenses, then yes, a $5,000 emergency fund puts you in good shape. But if your essential bills come to $2,700 a month, then a $5,000 emergency fund may not cut it.

Why three months’ worth of essential bills? While your emergency fund is designed to cover things like sudden home or car repairs, it should also be set up to get you through a period of unemployment. And it’s fair to assume that if you were to lose your job, it might take three months to replace it with a new one. That’s where that guidance comes from.

Also, if you have enough money in the bank to pay for three months of essential expenses, you should have enough to cover other costs that arise unexpectedly, like medical bills. So all told, that three-month guidance is worth following. And if you can do even better so you’re saving closer to six months of expenses or more, you’ll have that much more financial protection.

Expenses your emergency fund should account for

As mentioned above, your emergency fund should be specific to you. So what you’ll want to do is comb through your bank and credit card statements to identify your essential bills, and then list them along with their respective costs.

In doing so, though, don’t forget about bills you don’t pay every month. It may be that you own a home and owe property taxes on it once a quarter. Your emergency fund should account for that expense.

What’s more, while the usual guidance is to have your emergency fund cover three months of essential expenses, you may want to pad yours so there’s room for some modest non-essential spending. Having access to streaming content, for example, could be good for your mental health while you’re out of work and stuck at home a lot. So that’s a bill you may want to keep paying even in the event of a lost paycheck.

Similarly, let’s say you have kids and one plays on a baseball team. Would you really want to have to pull them out for three months because you can’t pay your monthly club dues? Probably not. So in that case, you’d want your emergency fund to include a little extra money for that expense, even if it’s technically not a necessity.

How to calculate your emergency fund

Once you’ve identified the expenses your emergency fund should cover, it’s a matter of a little addition and multiplication. So, let’s say these are your total monthly expenses:

Rent: $950Utilities: $100Cellphone: $100Streaming content: $50Groceries: $400Medication: $50Car payment: $450Car insurance: $150Gas: $100Gym membership: $50Social outings: $200

The total of all of these expenses is $2,600. You may decide that in the event of a layoff, you’d be okay with canceling your gym membership and skipping out on social plans for a limited period, but you need your streaming content to not go out of your mind with boredom at home. So in that case, you could subtract $250 from your total, bringing that number down to $2,350.

But wait! What if by losing your job, you also lose your health insurance and have to pay for coverage of your own? That might add $300 a month to your expenses. So suddenly, your essential monthly spending is back up to $2,650. And if you want enough of an emergency fund to pay for three months of essential spending, then you’ll need a total of $7,950 in the bank.

This also assumes you’re comfortable only saving enough to cover three months of bills. You may be aiming for six months’ worth. But it gives you a starting point.

Of course, your expenses might look different than the ones above. This is only an example.

The point, however, is that your emergency savings needs may be greater than you think. So if your goal is to build a fully loaded emergency fund, make sure you’re working with the right target.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Costco has added a new item to its lineup. Read on to learn more about it. 

For many people, the highlight of shopping at Costco is getting to pick up some yummy sweets from the store’s bakery section. Whether it’s mega-sized muffins or a massive cheesecake, you’re apt to find something that tempts you. And given Costco’s generally competitive prices, you won’t even have to feel bad about your resulting credit card tab.

But Costco has recently introduced a new item in its bakery lineup that’s actually not all that sweet. And you may want to hunt it down and bring it home immediately.

How does chile-flavored cornbread sound to you?

Costco’s Kirkland Chile Cornbread is a savory concoction with a bit of a kick — hence the chiles. And so far, customer reviews seem positive.

Now, if Costco’s cornbread is based on the recipe used for its corn muffins, a bakery mainstay, you can expect a side dish that’s not too dry and not too sweet. And the addition of the chiles easily propels it out of the dessert category and into the “actual food” category. Plus, at a price of $6.99, you might have a hard time whipping up a homemade batch for less. You might, in fact, save money if you’re tasked with making cornbread for a family picnic or function (though do note that Costco prices can vary by location).

Here’s another great thing about the new Kirkland Chile Cornbread. Normally, it’s kind of hard to justify a Costco bakery buy when you’re not freezing some of it or serving it to a crowd. But since cornbread can function as a side dish for chili and other stews, you don’t need to be hosting an event to justify buying it. You might, for example, decide to whip up a pot of chili for your family one Sunday, serve cornbread on the side, and then enjoy that combination throughout the week as leftovers.

You may also want to keep Kirkland Chile Cornbread on hand as Thanksgiving approaches. Cornbread is a common side dish for that event. And while you might generally prefer to go the homemade route, for $6.99, it’s hard to pass up the opportunity to outsource some of your baking.

A low-risk proposition

Taking a chance on new products commonly means running the risk of losing money if you don’t end up enjoying or being able to finish what you’ve purchased. But here, your risk is minimal.

If you’re someone who likes cornbread and doesn’t mind a bit of heat, then chances are, you’ll like Costco’s version. But even if you find it too spicy, you can tame that spice with a little dollop of sour cream. And if you find Costco’s version too dry, buttering it should do the trick. Plus, if you’re planning to serve it alongside chili, that, too, takes care of the dryness factor.

Of course, if you really don’t end up liking your cornbread, and you don’t make too much of a dent in it, you can probably bring it back to Costco for a refund. The warehouse club giant is really good about issuing refunds for food products that don’t meet customers’ expectations. So all told, you really don’t have too much to lose by giving the new Kirkland Chile Cornbread a try.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Dealing with a large load of credit card debt? Read on for some tips on breaking out of that unwanted situation. 

Credit card debt is highly undesirable for a few reasons. First, it can cause damage to your credit score, making it harder to borrow money affordably when you need to. And also, it can cost you a lot in the form of accrued interest. And frankly, that’s money you deserve to be able to spend on yourself — not hand over to a credit card company.

But while credit card debt may not be ideal, a lot of people land in it due to unavoidable circumstances. In fact, nearly 25% of U.S. consumers owe more than $5,000 on their credit cards, according to a recent survey by First Tech Federal Credit Union.

If that’s the boat you’re in, you may be eager to pay down that debt. And here are three options to look at in that regard.

1. Set a monthly goal

Paying off a credit card balance over $5,000 is not easy. And the idea of it can be overwhelming. So instead of focusing on going from above $5,000 to $0, focus on what you can reasonably do every month.

Maybe if you make some changes and cut spending, you can pay off $200 of your balance each month, or $250. Set realistic goals so you’re motivated to continue chipping away at your debt.

2. Look into debt consolidation

If you’re juggling multiple credit card balances, consolidating into a single loan or balance could help make your debt more manageable. Plus, you might also get a lower interest rate on your debt, resulting in some savings.

Now, there are different ways to consolidate debt, but a few popular ones are:

A balance transferA personal loanA home equity loan

Each of these options has pros and cons to consider. A balance transfer might give you a 0% introductory interest rate on your debt — so that’s good. But that intro period might be limited to 18 months or less — so that’s not so good, because once that intro period runs out, you could face a really high interest rate on your debt.

Both a personal and home equity loan, meanwhile, will allow you to lock in a fixed interest rate on your debt. But you’ll need to make sure you can keep up with your monthly payments, since falling behind could have consequences. This especially applies to a home equity loan — fall too far behind, and you could risk losing your home.

3. Make some spending or work-related changes

It takes money to pay off debt — there’s no getting around that. So you’ll need to make some concessions if your goal is to be debt-free.

Look at your monthly spending and see if there are expenses you can reduce without causing your life too much upheaval. You don’t necessarily have to uproot yourself and downsize to a small home. But cutting back on leisure spending may be necessary and reasonable.

Another option is to take advantage of the gig economy. Working a second job could give you the cash you need to whittle down your debt without having to change your spending habits too drastically. Of course, this will mean making a different type of sacrifice — giving up free time. But it may be easier than cutting spending. That’s really up to you, though.

Just because you have a large credit card balance doesn’t mean you’re doomed to carry it forever. With these strategies, you may find that you’re able to eliminate your debt sooner than expected.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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